First, TOT has entered the potentially prolific play in Chinese shale. Total recently partnered with Sinopec (SNP) to begin fracking China’s vast shale rock formations. Estimates peg China’s shale reserves as the world’s largest. The 1,500 square-mile region that Total and SNP are prospecting will yield around 10 billion cubic meters of natural gas by 2017.
Second, TOT continues to prospect in the deepwater off of the coast of Africa with great success. The firm has recently begun a massive offshore project in Angola. The Kaombo project will contain six oil fields, containing both heavy and light oil, across 59 wells. Once it is completed in 2017, the project will produce around 230,000 barrels per day or about 13% of Angola’s total daily production.
Adding these two deals and projects to others — such as a new liquefied natural gas (LNG) facility in Russia and exposure to Brazil’s Santos Basin — causes the longer-term production profile at Total to be quite sweet. Overall, the energy firm estimates that these projects will have it producing around 2.6 million barrels per day by 2015 and possibly 3 million per day by 2017.
Time To Buy TOT Stock
And despite that bullish spending and production profile, TOT stock is currently trading at a discount to its European peers — except for BP, which is still struggling under the weight of its legal woes.
On a forward price-to-earnings metric, TOT stock currently trades for a little more than 10 times earnings. While that is above its historic norm, it’s still below rivals ENI & Shell. That duo currently trades for a forward P/E north 12. Total’s discount versus its European rivals extends itself to its price-to-book and PEG ratios as well. Not to mention its gross profit margin of 28% is higher than the other two firms.
Even when looking across the pond here in America, TOT stock is actually cheaper on a forward P/E basis that majors like Exxon (XOM).
On the dividend front, Total’s recent increase is another advantage. TOT stock is currently yielding 5.1%. That compares to only a 4.7% yield for both E & RDS.A. That dividend yield bests even America’s major energy players.
Total offers a higher long-term production growth profile and bigger dividends at a much cheaper price than its rivals. TOT stock is a great example of what constitutes a great bargain. Over the long haul, its new ambitious projects will help drive returns and future increases. The cheaper metrics make those projects even better.
Given that scenario, TOT stock is an obvious buy for investors looking to add some European muscle to their energy portfolio.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.